Euro-Area August Economic Confidence Surges to Two-Year High

Economic confidence in the euro area soared to a two-year high in August as the currency bloc’s recovery gathered pace after it exited a record-long recession.

An index of executive and consumer sentiment rose for a fourth month to 95.2 from 92.5 in July, the European Commission in Brussels said today. The median of 26 economists’ forecasts in a Bloomberg News survey was for an increase to 93.8.

Increased momentum in the euro-area economy since it returned to growth in the second quarter after an 18-month contraction has boosted equities, with the Stoxx Europe 600 Index up 3.6 percent in the last two months. Yet Europe continues to struggle with the legacy of a debt crisis now in its fourth year, including a jobless rate that held at a record 12.1 percent in July, according to a report today from the European Union’s statistics office in Luxembourg.

“This number shows the recession has come to an end and the recovery is continuing,” Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam, said by telephone. “The risk is that people will become too euphoric and think the economy will go up in a straight line. This probably won’t be the case. Austerity continues. In many countries the housing market is weak and the labor market is weak.”

Domestic Market

The euro extended gains against the dollar after today’s data were released, before trading little changed on the day at $1.3242 at 11:48 a.m. in Brussels.

Europe’s economic rebound has buoyed companies across the region. Carrefour SA, France’s largest retailer, reported a 4.9 percent increase in first-half profit yesterday, as a revival in its domestic market more than offset the economic difficulties of southern Europe. Earnings in France rose 75 percent, the company said.

Bouygues SA, the French building, telecommunications and television company, said on Aug. 28 that second-quarter profit rose 10 percent. Last year “should mark the low point” in the group’s profitability, the company said.

Yet unemployment is proving resistant to Europe’s improving fortunes, and may help to explain why economists in a separate Bloomberg survey see growth slowing to 0.1 percent in the third quarter after a 0.3 percent expansion in the three months through June. Analysts forecast the jobless rate won’t drop below 12 percent through 2015.

Export Market

In Germany, Europe’s largest economy, unemployment unexpectedly rose for the first time in three months in August. While the euro area, Germany’s largest export market, has returned to growth, some companies are still cutting jobs as countries on the bloc’s periphery remain mired in recession.

ThyssenKrupp AG, Germany’s biggest steelmaker, plans to cut 3,000 administrative jobs over three years and this month said it will shut two plants at Neuwied. Salzgitter AG, the rival steelmaker that predicts a loss for 2013 amid waning demand in Europe, will eliminate more than 1,500 positions.

“We have a very bleak outlook for unemployment in the euro area as a whole,” said Anatoli Annenkov, senior economist at Societe Generale SA in London. “The main headwinds remain high policy uncertainty in the euro area and still-fragmented financial markets, while we also expect several countries to need more fiscal consolidation.”

Inflation in the euro area slowed to 1.3 percent in August and has been below the ECB’s 2 percent ceiling for seven months, Eurostat said today.

President Mario Draghi said in July that the ECB would keep interest rates at the present level or lower for an “extended period” based on a “subdued” inflation outlook. Governing Council Member Ewald Nowotny said yesterday that a rate cut is still possible.